Casino stock prices have plummeted in recent weeks because of the COVID-19 pandemic. But one gaming industry analyst believes the bottom has been reached, and now is the time to buy.
Bank of America analyst Shaun Kelley has buy ratings for Wynn Resorts, Las Vegas Sands, Boyd Gaming, Penn National Gaming, MGM Resorts, Eldorado Resorts, and Red Rock Resorts. All have been slaughtered in trading since the coronavirus forced states to shutter non-essential businesses, which has included casinos.
The gaming industry has been one of the hardest hit sectors by the pandemic hysteria. With travel restricted, casinos closed, and hotel operations shuttered in many states, investors have sold their stakes in the companies, as revenues are expected to greatly decrease in the coming quarters and possibly years.
The VanEck Vectors Gaming ETF, which is currently compromised of 43 casino stocks, has dropped from $37.59 a month ago, to $20.57 at the close of trading yesterday.
Kelley’s note comes at the most appropriate time, as the gaming industry is bouncing back during today’s trading. Share prices were up across the sector, prompting the Vectors ETF to jump five percent on Thursday.
Securities filings made Wednesday reveal several MGM Resorts executives snagged up shares of the casino company after its price tanked more than 60 percent over the last week. At the close of trading Wednesday, MGM stock was at its lowest valuation in over two decades.
Wynn Resorts +3.58 (8.28 percent)
Las Vegas Sands +2.69 (7.14 percent)
Boyd Gaming +3.47 (44.26 percent)
Penn National Gaming +1.57 (34.73 percent)
MGM Resorts +0.57 (7.99 percent)
Eldorado Resorts +0.67 (9.44 percent)
Red Rock Resorts +2.02 (53.72 percent)
Along with the buy recommendations, Kelley issued new price targets for each casino stock. He said the price targets are based on updated 2020 recession-level earnings outlooks.
Our stocks are already pricing in significant liquidity concerns and we have long been aware of the financial/operational leverage in these companies,” Kelley explained.
Slashed Target Prices
- Wynn – $135 to $85
- Sands – $67 to $61
- Boyd – $38 to $22
- Penn – $39 to $12
- MGM – $35 to $14
- Eldorado – $63 to $15
- RRR – $27 to $9
Macau Nearing Clear?
Kelley said part of his reasoning for issuing buy ratings on the aforementioned stocks is partly due to COVID-19 stabilization in China. The BoA analyst says he’s most bullish regarding US-based casino stocks that have exposure in Macau – MGM, Sands, and Wynn.
Macau casinos were forced to close for 15 days in February, which resulted in gross gaming revenue (GGR) tumbling 88 percent for the month. They’re back open, but three new coronavirus positive tests this week prompted the enclave to restrict entries to travelers coming from China, Hong Kong, and Taiwan.
Despite Kelley’s optimism regarding the gaming industry, JPMorgan said Thursday that it expects the coronavirus to be more devastating on the US economy than the 2008 financial crisis. The firm is predicting the US economy will shrink 14 percent in Q2.